Term · Governance & Shareholder Structure
Related-Party Transaction
In briefA related-party transaction is a dealing with related parties - such as founders, major shareholders, management or group companies. For small caps it can be a considerable governance risk, because control and transparency are often weaker.
Definition
A transaction with related persons or companies, such as founders, major shareholders, management or affiliated entities.
How it is calculated
Formula. Not a valuation figure; assessed via amount, terms, counterparty and disclosure.
Why it matters for small caps
In the small-cap space, related-party transactions can represent a considerable governance risk, because control and transparency are often weaker.
Common misreadings
- It is overlooked when only profit figures are considered; economic value can drain away via side agreements.
In the process
Frequently asked
What is a related-party transaction?
It is a transaction between the company and parties related to it. These include, for example, executives, major shareholders or affiliated firms.
How do you assess transactions with related parties?
You look at the amount, terms, counterparty and disclosure. The decisive point is whether the terms match a transaction between unrelated third parties (arm's length).
Why are related-party transactions risky?
Economic value can drain out of the company via side agreements. Anyone who looks only at the profit figures easily overlooks this governance risk.
Related terms
Sources
Primary
IFRS Foundation – IAS 24 Related Party Disclosures
https://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/
https://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/
Methodology
Bundesministerium der Justiz – Aktiengesetz (AktG)
https://www.gesetze-im-internet.de/aktg/
https://www.gesetze-im-internet.de/aktg/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.